BREAKINGVIEWS-Telefonica may have to inch higher for GVT

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)

By Fiona Maharg-Bravo

MADRID, Aug 28 (Reuters Breakingviews) - Telefonica
is showing how much it wants to buy GVT. The Spanish telecoms
group has given Vivendi a 24-hour deadline to accept a
new 7.45 billion euro ($9.8 billion) offer for the French
conglomerate's Brazilian subsidiary. A competing bid from
Telecom Italia is 450 million euros lower, has less
cash and is more conditional. Still, Vivendi could yet wring
more out of this auction.

The Spanish GVT proposal immediately looks more attractive.
It comprises 4.7 billion euros of cash plus a stake in its
Telefonica Brazil subsidiary worth 2.8 billion euros. About a
third of those shares could be exchanged for a 5.7 percent stake
in Telecom Italia, in which Telefonica has been a longstanding
shareholder.

On standard M&A thinking, Telecom Italia's fiddly bid has
much against it. The proposal has just 1.7 billion euros of
cash. The remaining considering consists of a 15 percent stake
in TI's Brazilian unit, TIM Brasil, and a 16 percent
stake in Telecom Italia. Unlike Telefonica's, the offer requires
a shareholder vote. To complicate matters further, TIM Brasil is
also in play - Oi, Brazil's biggest fixed-line
company, says it is considering buying TI's stake.

Vivendi says both offers include content deals. Details are
scant, but that probably favours Telefonica, which has a larger
global footprint than its Italian rival. The best that can be
said for Telecom Italia's proposal is that it offers a large
stake in itself, possibly positioning Vivendi nicely for future
European telecoms consolidation.

Still, Vivendi would be unwise to rush off with Telefonica.
Telecom Italia could still sweeten its bid with more of its own
stock. Both sides seem to acknowledge that Telecom Italia shares
are seen as an attractive currency by Vivendi Chairman Vincent
Bollore. A revised Telecom Italia bid could in turn force a
counterbid from its Spanish peer.

How much higher could Telefonica go? GVT is worth 5.2
billion euros on a standalone basis, equivalent to 7.5 times
this year's EBITDA, say analysts at Kepler Cheuvreux. Telefonica
could reap synergies with a present value of about 3.5 billion
euros, although that includes a more elusive 1 billion euros of
added revenue from cross-selling. On that basis, Telefonica
could raise by another 1.2 billion euros without destroying
value. It may yet have to pay some of that away to get what it
wants.
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